Access to the internet has made starting a home-based business a popular option for many people looking to pursue their passion or spend more time with family. In fact, there are an estimated 38 million home-based businesses in the U.S.
Do you have a business concept you’ve thought about putting into action? Learn what steps to take and where to get help when starting a small business at home.
Step 1: Pick a business idea
When deciding what you want to do, think about how you can translate your unique knowledge and skills into selling products, providing services, or becoming an influencer.
Look for market gaps where you can make an immediate impact, but be prepared for things to start slow. In fact, the average new business doesn’t make a profit for at least three years.
Research your idea to find out what you can expect from starting a home-based business in this industry.
Step 2: Create a business plan
With an idea in mind, it’s time to come up with a business plan that digs into the details of how you’ll operate and, eventually, make money.
Start by creating a mission statement that defines how you’ll help your audience on a day-to-day basis, then think about how you plan to make a long-term impact as you create a vision statement. Many companies use these terms interchangeably, but it’s important to know the differences when creating your business plan.
Mission Statement: The mission statement defines who you’ll serve and how you’ll serve them. This is the core of your business that will be used to define success metrics and short-term goals.
Vision Statement: The vision statement is a long-term goal that defines how your business strives to change the world. It should serve as the reason why your company exists and is unlikely to be measurable.
For example, Google’s mission statement is: “To organize the world’s information and make it universally accessible and useful.” This conveys the day-to-day goal of organizing information which supports their long-term vision “to provide access to the world’s information in one click.” By focusing on organizing information in the present, Google hopes to make that information accessible with a single click in the future.
The mission and vision statements are essential aspects of any business plan, but you can choose what other aspects to include or leave out depending on your vision. Aim to be clear and concise, but know that investors will probably want more detail if you plan on seeking outside funding.
Step 3: Choose a business structure
Consider whether you plan to grow this business beyond yourself (i.e. hire employees) or if you want to keep it small so you can focus on spending time with family. Where do you plan to be in one year, three years, and five years later? Envision how you plan to grow your business and choose a structure that will allow you to achieve your goal.
The structure of your business has a major effect on how many people you can hire and the taxes you’ll pay, so choose wisely.
Common structures for home-based business include:
This is the easiest type of business to form and gives you complete control of your company. If you don't formally incorporate your business, it will automatically be a sole proprietorship. The disadvantages of this structure are unlimited personal liability and difficulty raising money, but many businesses start out as sole proprietorships to test their ideas before transitioning to a more formal structure.
Partnerships are a popular choice for groups of two or more people looking to start a business together. There are three types of partnerships (general, limited, limited liability) that split up liability in different ways, but all are generally quick and easy to set up. Rather than paying taxes as a business entity, each partner reports their share of the income or losses on their personal taxes.
Partnerships are a great choice for small groups looking to form a business with several options for splitting up liability among owners.
Limited Liability Company
An LLC is a hybrid between a partnership and a corporation. This structure can be formed with a single individual or several owners which are called “members.” Fundraising is generally easier with this structure and taxes are low because they can be passed through to personal income instead of paying corporate rates.
Forming an LLC is a good idea for businesses that are considered higher risk, or for owners who want to pay a lower tax rate and protect their personal assets.
Other Business Structures
These are just a few of the many options available for structuring your business. Learn more about these business structures and several others in our Ultimate Guide to Comparing Business Structures.
Step 4: Get funding for your business
The fundraising process can happen at multiple points throughout a company’s formation, or may not be required at all in some cases. Many businesses choose to seek funding before officially registering, as that process can be lengthy and expensive depending on the business structure you choose.
There are several options for raising money, such as:
This is the easiest way to finance your company if you have the cash to spare, but may not be viable in the long term if you want to scale your business. Consider how much it will cost to operate your business, when you expect to reach profitability, and what you plan to pay yourself until hitting that point.
This funding method is highly competitive, but a strong business plan can be enough to attract experienced investors who will help guide you in the formation of your business. VC firms are also likely to offer additional funding in case your business runs out of capital, but they will usually require solid proof that your business is poised for rapid growth before getting involved.
Raising money online has become increasingly popular with the rise of crowdfunding sites like Kickstarter. These sites allow users to post their business idea online and ask for funding, often in exchange for various levels of prizes that depend on how much the user donates.
One of the most notable Kickstarter campaigns occurred in 2012 when smartwatch company Pebble raised $10.2 million from 68,929 backers after seeking only $100,000. Pebble was one of the first companies to explore the idea of a smartwatch that connected with phones and users flocked to support their revolutionary device.
Users could donate as little as $1 to receive updates on the creation process and availability of the device or pledge up to $10,000 to receive a crate of 100 smartwatches in any color. Although the competition eventually caught up with Pebble, their Kickstarter success is a remarkable feat that has paved the way for other businesses to raise money on the crowdfunding platform.
Step 5: Register your business
Research federal and local laws to determine what legal actions you need to take when starting a home-based business. You will likely need to register with the federal and local governments to obtain the proper operating licenses. Some businesses are also restricted by local zoning laws, which prohibit people from starting certain types of businesses in communities.
Start your home-based business today!
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